Marcum Food & Beverage 2024 Mid-Year Report

I hope our readers enjoyed the 2024 Marcum Food & Beverage Annual Report, released in March, which summarized the findings from our annual survey, as well as discussions with clients and industry contacts. This Mid-Year Report is an update based on research and ongoing client discussions regarding the current situation in the food and beverage industry.

M&A activity is heating up despite high interest rates, and in-person activity is rising for events, shows, and meetings. AI has generated significant interest, but there are headwinds of doubt and overblown expectations. Private label continues its climb, and all sectors of the food and beverage chain are feeling the effects of inflation on pricing and the pushback from consumers. Restaurants are closing in large numbers as the government subsidies are reduced, and the effects of the pandemic are finally quieting down. Automation and technology are significantly impacting the industry, and those who aren’t taking advantage of them will be left behind. Employment is still an issue but appears to have moderated a bit. The supply chain continues to be challenging, especially because of climate, tariffs, and geopolitical effects.

All in all, the food and beverage industry, while always resilient, is facing significant challenges, and CEOs are still hesitating about the next steps. Should prices be raised or lower? Should employees be hired or fired? Should they buy or wait? Should they upgrade or tough it out? Each factor affects the others, and without a well-designed strategy, accurate, timely financial information, and a pulse on consumer sentiment, the results can be devastating. Please have a good read, and remember, we’re always here to assist you.

Lou Biscotti
Marcum Food & Beverage Services Leader

The State of Food Manufacturing and Distribution

Marcum contact: Ira Cooperman

The manufacturing and distribution sector of the food and beverage industry is facing some complex challenges as it competes and adapts to the new world of appetite suppressants, including Ozempic, Wegovy, and Zepbound. While some companies see challenges, other food manufacturers see the potential in this new wave of life-changing medicine. Food manufacturers have always looked to the health food space as a growing market focusing on healthy alternatives, reduced sugar, reduction of highly processed foods, and plant-based food alternatives. The food manufacturing industry, as a whole, is concerned that eating fewer sweets and highly processed foods will diminish profits. As people think about maintaining their significant weight loss, they will avoid junk food, reduce portions, and make better food choices.

Companies have started quickly shifting production to even healthier choices, including more high-protein foods such as eggs, produce, grains, and legumes. Food manufacturers have been paying close attention to the market and realize that the industry must pivot quickly to meet these customer demands. More attention to smaller packaging, healthier ingredients, and marketing directly to this new group of consumers will play a key role in boosting profits.

Demand remains high, but pricing pressures and margin erosion are continuing. Some supply prices are stabilizing but no decreases are foreseen for the next several months.

– A large vegetable and fruit box distributor

The State of Restaurants

Marcum contact: Patrick O’Reilly

The restaurant sector of the food and beverage industry has witnessed several significant trends in the last several months, reflecting consumer preferences and industry innovation:

Delivery and Takeout Boom: The demand for delivery and takeout services has continued flourishing, with many restaurants streamlining their off-premise offerings.
Health-Conscious Menus: With a growing focus on well-being, menus increasingly feature nutritious options, plant-based alternatives, and ingredient transparency to cater to health-conscious consumers.
Technology in Dining: Technology adoption has surged with contactless ordering, mobile apps for reservations and payments, and increasing reach across multiple digital channels.
Local and Sustainable Sources: There’s a greater emphasis on locally sourced ingredients and sustainable practices, appealing to consumers’ desire for fresh, eco-friendly dining options.
Macroeconomic Factors: Consumers continue to prioritize their resources with their dining choices and frequency as wages have not kept up with inflation, which has eroded disposable income.
Experiential and Immersive Experiences: As diners crave unique experiences, restaurants offer themed dining, interactive meals, cooking classes, and specialty liquor/wine/beer tastings to engage customers beyond traditional dining.

These trends reflect the sector’s resilience and adaptability in meeting the evolving needs and preferences of diners while navigating the challenges presented by the global landscape.

We are experiencing explosive growth and achieving economies of scale as they grow, and we are able to stabilize supply contracts through long-term relationships with vendors to even out market price fluctuations that were problematic previously.

– A small regional chain of quick-service restaurants

The State of Retail

As we approach the year’s midpoint, the food retail sector stands at a critical juncture of adaptation and innovation. Amidst the shifting consumer preferences and the acceleration of e-commerce, food retailers have demonstrated remarkable resilience and agility. They have responded to the increased demand for convenience, safety, and variety with expanded online offerings, contactless delivery options, and a renewed focus on local and health-conscious products. Despite supply chain disruptions and fluctuating market conditions, retailers continue to strive for sustainability and efficiency, adapting their business models to not only survive but thrive in the face of unprecedented challenges.

Several prevailing trends provide valuable insights into how food retailers are evolving and the strategic decisions you should consider:

Digital Transformation: The significant increase in online shopping has compelled food retailers to invest in their digital platforms, ensuring a seamless and efficient online shopping experience.
Health and Wellness: There is a growing consumer preference for healthy, organic, and locally sourced products. Retailers are expanding their offerings to cater to this demand for wellness-oriented food options.
Supply Chain Resilience: Food retailers are re-evaluating and strengthening their supply chains to mitigate the risks of disruptions and to maintain a steady flow of products.
Sustainability Initiatives: Retailers are actively implementing sustainable practices, such as reducing food waste and using eco-friendly packaging, to meet consumer expectations and regulatory requirements.
Personalization and Customer Experience: Leveraging data analytics, retailers are personalizing the shopping experience, from tailored recommendations to customized promotions, enhancing customer loyalty and satisfaction.
Contactless Commerce: The pandemic has hastened the adoption of contactless payment systems and curbside pickups, making safety and convenience top priorities for consumers.
Private Labels: As consumers seek value, especially in a fluctuating economic environment, the rise of private label products offers retailers higher margins and customer retention opportunities.

Consumers are starting to push back, wanting lower-priced goods. Discount retailers are poised for accelerated growth, and traditional retailers must offer an experience in addition to product offerings to maintain their market share.

With continued pressure on pricing due to inflation, retailers are moving to private label versus our main branded items. This cuts into our margins and can have an impact on brand equity over an extended period of time.

– Shawn Kaddoura, CEO of Mario Camacho Foods

The State of Agriculture

Marcum contact: Dan Dowell

The agriculture and farming industry constantly evolves and is forced to adapt to a continuously challenging environment. This sector’s success is critical for the country’s food supply and the overall economy. Below are just a few examples of the issues the industry is facing:

Inflation: The rising cost of fuel, machinery maintenance, and the price of supplies are just a few things cutting into farmer’s profit margins in 2024.
Food Safety and Traceability: Intentional and unintentional contamination of the US food supply is a growing concern.
High-Tech Farming: Farmers are using advanced technologies like robots and drones to grow more food, save time, and protect nature.
Eco-friendly Farming: Farms are focusing on growing crops in a way that doesn’t harm the environment, with new methods that are good for the planet.
Stronger Supply Chains: After facing challenges like COVID-19, farms are making sure they can always get and deliver what they need without interruptions.
What People Want to Eat: As people choose healthier and eco-friendly food, farmers are changing what they grow to match these trends.
Need More Hands: There aren’t enough farm workers, so they’re trying to use more machines and asking for changes in the laws about who can work on farms.
Worldwide Influence: What’s going on in other countries, like how much food they buy from the U.S., can affect American agriculture.
Better Living Conditions in the Countryside: The government and communities are trying to improve life in rural areas by providing better internet, roads, and energy, which also helps farms.

Merger & Acquisition Activity

Marcum contact: Fred Campos

M&A activity in the United States picked up significantly during Q1’24. The volume of transactions increased 59% to $431.8 billion.

Lending requirements appear to have eased as lenders compete for deals. Cost of debt is below 2023 peaks. This is good news for M&A, as financial sponsors rely heavily on debt to structure deals.
Overall sentiment is positive but cautious compared to 2023, as any interest rate cuts are uncertain, and inflation has yet to be tamed.
Buyers are increasingly looking for Representation and Warranties (R&W) insurance to expedite closing and minimize post-close risks. Buyers and sellers usually split the costs.
F&B companies consistently evaluate their brand portfolios. Corporate carve-out deals continue to be attractive for financial sponsors. Early this year, Platinum Equity announced the acquisition of Horizon Organics and Wallaby from Danone. Deal terms were not disclosed. Campbell’s Soups added Rao’s Homemade products, Michael Angelo’s frozen entrees, and Noosa’s Yoghurt to its brand portfolio by acquiring Sovos Brands in a massive exit for Advent International.
According to Pitchbook, 144 deals were announced or closed during Q1’24, dominated by Food Products (35%), Restaurants & Bars (22%), and Beverages (20%).

Largest M&A deals

Campbell’s Soups acquisition of Sovos Brands for $2.7 billion

Citation Capital acquisition of Cibo Vita for $480 million

Clayton, Dubilier & Rice’s acquisition of Shearer’s Snacks for $285 million

The State of Technology

Marcum contact: Waqqas Mahmood

Technological advancements that aim to improve efficiency, customer experience, sustainability, and safety continually influence the food and beverage industry.

latest key trends for technology

Food Safety and Traceability Technologies: With growing concerns about food origin and safety, technologies such as blockchain and IoT are being used for traceability to track food from farm to table accurately.
Generative Artificial Intelligence (Gen AI) and Machine Learning (ML): These technologies are used for demand forecasting, personalizing customer experiences, and optimizing supply chains. They are also being used for marketing and communications purposes, such as menu and website design and recipe creation for both food and beverages.
Robotics and Automation: Robotic systems are increasingly deployed in production lines, packaging, and even food service to enhance speed and reduce human error.
Smart Kitchen Technology: Internet-connected appliances and systems in the kitchen help streamline the cooking process and improve energy management.
Online Ordering and Delivery Platforms: Mobile and online ordering platforms have become essential, integrating into the business’s point-of-sale system for a seamless customer experience.
Sustainable Technologies: Adopting technologies that support sustainability, like biodegradable packaging materials and energy-efficient equipment.

Virtual and Augmented Reality (VR/AR): Used to train employees, enhance customer experience (like visualizing menu items), and even develop products.
Personalized Nutrition and Customization: Technology that allows consumers to customize their food and beverages based on their dietary needs and preferences.
Plant-based and Lab-grown Food Technologies: Investments are increasing in technologies that produce plant-based and lab-grown meat alternatives, driven by environmental and ethical considerations.
Drones and Autonomous Vehicles: For remote monitoring of agricultural fields and last-mile delivery of food products.
Internet of Things (IoT): Devices connected across the food supply chain provide real-time data for better inventory management, equipment maintenance, and quality control.
Cloud Computing and Big Data Analytics: Enables businesses to store vast amounts of data and leverage it for strategic decision-making and operational improvements.
3D Food Printing: Emerging technology for creating customized food products, which could revolutionize product design and consumer experiences.
Voice Technology: Integration of voice technology in food ordering systems both in-home devices and drive-thrus.

Understanding and adopting these technologies can provide significant competitive advantages by enhancing operational efficiency, creating new business models, and meeting changing consumer demands.

Having traceability of ingredients, raw material, and quality standards is the holy grail of F&B companies. We are working to create an integrated technology eco-system to achieve this objective.

– Marcum Technology client

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